Friday, March 15, 2013

Jindal’s 47 Percent Solution

(NOTE: There's an UPDATE to this post on the jump page regarding the current sales tax exemptions that Gov. Jindal wants to keep if his tax plan is passed.)

Gov. Bobby Jindal finally unveiled his tax-swap plan last week — almost. After promising to produce a bill by March 15, he instead gave lawmakers a two-page summary of high-minded but vague talking points, which at least was more than the one-page summary he previously used.

For example, he acknowledged that he wants to raise the state sales tax from 4 percent to 5.88 percent — a hike of 47 percent. That will give most parts of Louisiana the highest combined state and local sales tax rates in the country. (Jindal ignores that aspect of the plan.) At the same time, his handout alluded to eliminating “unnecessary” state sales tax exemptions, but didn’t cite any in particular.

It was more than a tad ironic — metaphoric might be more like it — that the live online video stream of Jindal’s address last Thursday to the joint meeting of the House Ways & Means Committee and the Senate Revenue and Fiscal Affairs Committee had no audio. Not long after he left the witness table, the audio came back on. The next day, the archived version of the video still had no audio for Jindal’s presentation.

Given the governor’s penchant for keeping his most controversial initiatives under tight wraps until the last possible minute, one can’t help wondering if the audio blackout was a technical glitch or a Machiavellian ploy straight out of Richard Nixon’s playbook.

In any event, Jindal won’t be able to play hide-the-ball much longer. That strategy worked fine last year with his education reform package, but things are different this year. For starters, it was relatively easy then to sell the idea that teachers are responsible for Louisiana’s poor educational outcomes. This year, it won’t be so easy to convince people that paying the highest sales taxes in the country will be good for business.

The political landscape shifted, too. Jindal’s popularity is falling like a rock. Voters as well as a growing number of lawmakers no longer seem willing to follow him blindly. Moreover, the governor faces much higher procedural hurdles with his tax-swap plan. He needed only a simple majority in each legislative chamber to pass his education plan last year; he’ll need two-thirds to raise the sales tax this year. He has been told by more than one lawmaker that any plan to hike sales taxes is DOA in the House.

It’s not just lawmakers who are upset with Jindal’s plan — and his failure to deliver a bill with specifics, as promised, by March 15. A coalition of powerful associations representing sheriffs, district attorneys, school boards, local governments and others is poised to oppose the plan for a variety of reasons. Then there’s the deafening silence from the business community, which should be a bedrock of support for a Republican governor.

It’s hard to imagine retailers and the hospitality industry backing a plan to hike sales taxes by 47 percent. One can only wonder why they’ve stayed silent this long.

Last week, in response to criticism that his plan would hurt the poor and middle class taxpayers, Team Jindal released figures purporting to show that virtually all individual taxpayers would come out ahead under the governor’s plan. If that’s true, and if the plan really is “revenue neutral” as Jindal has promised, then the plan must shift more of the tax burden to businesses.

But wait … Jindal says this plan is designed to make Louisiana more attractive to businesses.

It’s a zero-sum game, folks. If the plan is revenue neutral, and if individuals will pay less under its provisions, then there’s only one place to make up the difference: businesses. Either that, or the governor’s lying about who’s going to pay what.

Finally, as John Maginnis astutely noted in his column last week, how can Jindal say on one hand that we need to “fix” our tax code because it makes us so unattractive to business — and then brag about all the business and industry he has attracted to Louisiana as governor? Either the system is broken or it’s not.

Truth is, parts of Louisiana’s tax code are quite broken. Unfortunately, those are not the parts that Bobby Jindal is trying to “fix” with his 47 percent solution.

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UPDATE: On Friday afternoon (March 15), the Louisiana Department of Revenue (LDOR) sent state lawmakers a list of current sales tax exemptions that Gov. Jindal plans to retain in his tax swap plan. The list was forwarded to me by a local legislator. The update came too late to make the print edition of Gambit. I'm posting it here because there's been so much uncertainty about which exemptions will be kept and which ones will disappear if the Jindal plan passes. Of course, the list below is merely what the governor proposes ... for now. It could change during the legislative process — or even before the governor submits a formal bill. The session begins on April 8.

Here's the text of the memo to lawmakers from LDOR:

This list represents sales tax exemptions that will be retained. When the tax reform package was announced, it was made clear that this was an iterative and interactive process. In this reform process various exemptions may be eliminated or amended because some are duplicates, unnecessary, or overly complex. The following is the initial list used in the determination of the proposed 5.88% sales tax rate.

Sales Tax Exemptions to be Retained

• Isolated or Occasional Sales of Tangible Personal Property• Manufacturers Rebates on New Motor Vehicles• Manufacturers Rebates Paid Directly to a Dealer• Leases or Rentals of Railroad Rolling Stock and Leases or Rentals by Railway Companies and Railroad Corporations• Purchases of Manufacturing Machinery and Equipment• Purchases of Certain Machinery and Equipment used to Produce a• Purchases of Electric Power and Natural Gas by Paper or Wood Products Manufacturing Facilities• Room Rentals at Camp and Retreat Facilities (retreats owned by 501c3)• Room Rentals at Camp and Retreat Facilities • Certain Transactions Involving the Construction or Overhaul of U.S. Navy Vessels• Purchases and Leases by Free Hospitals• Certain Educational Materials and Equipment used for Classroom Instruction• Leases or Rentals of Pallets used in Packaging Products Produced by a Manufacturer• Purchases by State and Local Governments • Purchases by Nonprofit Entities that Sell Donated Goods• Purchases of Tangible Personal Property for Lease or Rental• Natural gas used in the production of iron• Electricity for chlor-alkali manufacturing process• Sales of human-tissue transplants• Sales of raw agricultural products• Sales to the United States Government and its agencies• Sales of food items by youth organizations• Tangible personal property sold to food banks• Pelletized paper waste used in a permitted boiler• Purchases of equipment by bona fide volunteer and public fire department• Purchases of fuel or gas by residential consumers• Donation of toys• Purchases of food items for school lunch or breakfast programs by nonpublic elementary or secondary schools• Sales of Tangible Personal Property by the Louisiana Military Department• Articles traded in on tangible personal property• First $50,000 of new farm equipment used in poultry production• Admissions to athletic or entertainment events by elementary and secondary educational institutions and membership dues of certain nonprofit, civic organizations• Admissions to places of amusement at camp or retreat facilities• Repair services performed in Louisiana when the repaired property is exported• Repairs, renovations or conversions of drilling rigs• Work products of certain professionals• Pharmaceuticals administered to livestock for agricultural purposes• Materials used directly in the collection of blood• Apheresis kits and leuko reduction filters• Other constructions permanently attached to the ground• Purchases by motor vehicle manufacturers• Purchases by Glass Manufacturers• Purchases of machinery and equipment by owners of certain radio stations• Purchases of machinery and equipment by certain utilities• Sales of Newspapers• Donations to certain schools and food banks from resale inventory• Purchases by nonprofit electric cooperatives• Purchases by a public trust• Sales by state-owned domed stadiums• Sales by certain publicly-owned facilities• Sales of farm products direct from the farm• Materials used in the production or harvesting of crawfish• Materials used in the production or harvesting of catfish• Farm products produced and used by the farmers• Sales of steam - Nonresidential• Sales of water - Nonresidential• Sales of electric power or energy - Nonresidential• Sales of fertilizers and containers to farmers• Sales of natural gas - Nonresidential• Materials and energy sources used for boiler fuel• Sales of Food by Certain Institutions• Fees paid by radio and television broadcasters for the rights to broadcast film, video, and tapes• Repairs and materials used on drilling rigs and equipment• Sales of 50-ton vessels and new component parts and sales of certain materials and services to vessels operating in interstate commerce• Sales of seeds for planting crops• Sales of pesticides for agricultural purposes• Property purchased for exclusive use outside the state• Admissions to entertainment by domestic nonprofit charitable,• Sales of tangible personal property at or admissions to events sponsored by certain nonprofit groups• Sales by thrift shops on military installations• Sales of newspapers by religious organizations• Sales to nonprofit literacy organizations• Sales or purchases by blind persons operating small businesses• Purchases by certain organizations that promote training for the blind• First $50,000 of the sales price of certain rubber-tired farm equipment and attachments• Sales of certain fuels used for farm purposes• Purchases of certain fuels for private residential consumption• Piggyback trailers or containers and rolling stock• Pharmaceutical samples distributed in Louisiana• Certain trucks and trailers used 80% in interstate commerce• Certain contract carrier buses used 80% in interstate commerce• Rail rolling stock sold or leased in Louisiana• Utilities used by steelworks and blast furnaces• Sickle cell disease organizations• Sale of polyroll tubing• Purchase, Lease or Repair of certain capital equipment and computer software of qualifying radiation therapy treatment centers• Purchase of breastfeeding items• Purchases of vehicles modified for use by an orthopedically disabled person• Cash-basis reporting procedure for rental and lease transactions• “Sales or cost price” of refinery gas• Excess value of Vendor’s compensation• Vendors Compensation• Sales tax remitted on bad debts from credit sales• Purchases and leases of durable medical equipment paid by or under provisions of Medicare• Louisiana Tax Free Shopping Program• Sales of gasoline, gasohol, and diesel• Purchases made with WIC vouchers and food stamps • Credit for sales and use taxes paid to other states on property imported into LA• Credit for Use Tax Paid on Automobiles Imported by Certain Members of the Armed Services• Use of Vehicles in Louisiana by Active Military Personnel• Sales of Food for home consumption• Sales of Food for preparation• Sales of Electric Power or Energy to the Consumer for Residential• Sales of Natural Gas to the Consumer for Residential Use• Sales of Water to the Consumer for Residential Use• Drugs prescribed by physicians or dentists